Open the Gates — Cloudwater’s Tesco Deal Highlights Tensions Between Indie Ideals and Mainstream Accessibility

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Just days after U.K. pubs opened for the first time this year, one of the country’s most-respected breweries announced it was going into supermarkets, in what could be a watershed moment for the industry.

In a blog post on its website, Manchester’s Cloudwater Brew Co. announced it would release four core beers in Tesco supermarkets, alongside a mixed four-pack featuring collaborations with four minority-owned craft breweries—Rock Leopard Brewing Co., Eko Brewery, The Queer Brewing Project, and Good Karma Beer Co. The smaller brewers will receive all the profits from that special release.

Tesco customers can now buy singles of Cloudwater Pale Ale and Session IPA for £3 and a double-dry-hopped (DDH) Pale and IPA for £3.50 at around 1,000 stores. Two of the beers are new and exclusive to Tesco, but Cloudwater will be withdrawing its house IPA and DDH Pale from the independent trade. Meanwhile, the collaboration pack, called “Beer With Big Ideas,” will cost £10. It includes 6% ABV IPAs from three of the partner breweries, as well as a 0.5% ABV IPA from Good Karma, which specializes in low- and no-ABV beer. All the beers are contract-brewed at BrewDog, using Cloudwater’s house yeast.

The presence of independent beer in supermarkets has been a source of contention within the U.K. beer industry for years, with discount pricing allegedly squeezing the margins of small retailers or forcing them to stop stocking breweries that list with national chains altogether as sales drop off. The threat, independent retailers say, is that as shoppers find cheaper options in big chains, they will no longer want to visit their locally owned specialist stores.

Cloudwater’s announcement received a loud response from industry professionals and beer enthusiasts. While many celebrated the huge, new platform for the smaller brewers, others claimed Cloudwater was betraying the independent businesses that helped it build its global reputation. There were even heated accusations that the brewery has tried to soften the news of going into supermarkets by combining it with the collaboration box.

In a unified response, all five of the breweries involved have come out to explain how the opportunity will change their businesses for the better, and have attempted to show how this move might help the wider industry, too. Paul Jones, the founder of Cloudwater, says the political upheaval and protests of the last year, as well as previous partnerships with several of the breweries in the limited-edition four-pack, have fundamentally altered his business outlook. He now believes that supermarkets should be a key part of any attempt to improve diversity in craft beer. This belief is spelled out on the Cloudwater blog: “We have to look beyond the people and places we currently sell beer if we are to genuinely expand our reach.”

Lily Waite, co-founder of the Queer Brewing Project, echoes those ideas in a blog post on Queer Brewing’s website that says, “We must acknowledge that the current routes to market and, indeed, the market itself only serve certain communities at present.”

[Disclosure: Lily Waite is a contributor to Good Beer Hunting.]

The debate around Cloudwater’s decision highlights key questions for today’s beer industry. COVID-19 has forced significant changes to the off-trade, and disrupted how many breweries think about routes to market:

  • With the on-trade likely to be more competitive than ever due to pub closures and downward pricing pressure, where can breweries go to find opportunities for growth?

  • With some brewery owners saying independent bottle shops aren’t doing enough to cater to minority audiences, should improving representation and accessibility take precedence over supporting the independent retail sector that helped small brewers get this far?

PRICING ISSUES

On the surface, the announcement looks to be nothing but good news. Beers from one of the U.K.’s best-rated breweries will now be available in around 1,000 stores across the country, and Cloudwater has used the opportunity to give exposure to four small and minority-owned businesses. Many independent bottle shops and their supporters, however, as well as members of the on-trade, have always had an issue with supermarket beer. 

Pubs are an integral part of British culture, and discount pricing at supermarkets—which can lead to beer being sold for as low as a seventh of the price as it is in pubs—is widely believed to be a main cause of the 14,000 pub closures that have occurred since 2001. That total equates to around 25% of all pubs in the U.K. The main reason behind this shift is pricing, which has led to a surge in home drinking:

  • In 2016, the primary place where people drink shifted from the on-trade to the off-trade, and COVID-19 is expected to accelerate that trend. 

  • A further 10,000 licensed premises closed in 2020, and while overall consumption of alcohol dropped during the pandemic, supermarkets saw a +40% increase in sales. 

While independent bottle shops experienced some of their busiest months ever during the pandemic, much of the trade lost to pubs didn’t filter down to them, as they were squeezed between supermarkets and the hundreds of breweries that opened their own webshops. Both larger chain retail and breweries themselves are able to offer much better pricing than bottle shops, where owners ideally aim for a gross profit margin of around 40%. Jonny Bright, owner of the Hereford Beer House, says he has struggled to reach that figure in the last year, however. While supermarkets were able to trade as normal, bottle shops were restricted to e-commerce for much of the year, and that has squeezed his margins down to as low as 20%.

As a result, many bottle shop owners and publicans have been highly critical of Cloudwater’s move into supermarkets, as well as its timing: The announcement came just when the U.K.’s lockdown was starting to ease and the on-trade beginning to reopen. Cloudwater’s reputation as one of the best breweries in the world—it was rated number eight in RateBeer’s top 100 in 2020—means retailers often use its beer as a hook to bring customers in. In a bid to avoid that disruption, Cloudwater has ensured that all eight of the beers going into Tesco will be exclusive to the supermarket, while its other one-off and special releases will be available to independent retailers. 

The low supermarket prices, however, have raised retailers’ eyebrows. Bright doesn’t believe that drinkers will make the distinction between the Cloudwater beers sold in supermarkets and those sold to the independent trade.

“A regular customer just sees the extra £2-3 per can in an indie and thinks it’s all going in my pocket, when the reality is I’m paying £2.75 plus VAT for that beer in the first place,” he says.

In Bright’s statement is the assumption that those who shop for beer in supermarkets are also going into his bottle shop. While there is limited data available on such consumer habits, most breweries that have listings in nationwide grocery stores argue that their presence will reach new audiences and excite them about craft beer—with some of them moving on to explore the much wider range offered by independent shops. 

PART OF A PATTERN

Another criticism leveled at breweries deciding to list in grocery stores is that doing so may reduce the quality and variation of the rest of their range, as most of their resources will go towards meeting large supermarket orders. That in turn could harm independent retailers, which rely on breweries’ limited-edition and special releases.

To address that tension, Cloudwater has contract-brewed its Tesco beers at BrewDog to ensure it can still produce the same volume and quality of non-supermarket beer at its Manchester brewery. But David Hayward, co-owner of A Hoppy Place in Windsor, still sees this as part of a pattern of behavior that shows little regard for the independent trade. He cites the fact that Cloudwater withdrew all its beer from bottle shops in June 2020 to sell through its own channels during the pandemic. It announced the move in a blog post that it later had to apologize for because it implied retailers weren’t caring for its beer well enough.

After that move, Cloudwater also started stocking products from other British breweries on its webshop, a move designed to help smaller U.K. brewers weather the pandemic but one which also put it in direct competition with bottle shops. Additionally, Cloudwater used its global contacts to import beer from rare American breweries and initially made the beers exclusively available via its own channels. Hayward believes Cloudwater has leveraged its unique position to become “a real threat” to his businesses, rather than being part of the same supply chain.

“It was Cloudwater using their scale and reach advantages to disrupt the market,” he says. “Every week there was another reason to hit that £40 minimum [on their webshop] and not spend money with another independent outlet.”

However, Cloudwater is within its rights to sell directly to customers, and to bring in beers from anywhere that will sell to it. While there is no legislation preventing a brewery doing business this way—like the U.S.’s three-tier system—some bottle shop owners believe Cloudwater has broken a social contract by doing so.

GATEKEEPERS?

Not everyone has read Cloudwater’s moves in the same way as Hayward, and many were shocked by the Tesco announcement. When Good Beer Hunting spoke to Jones in a podcast episode recorded in May 2020, he said, “We’ve never made a beer for supermarkets and we never would.” Jones says Tesco had been chasing him for years to get Cloudwater beers on its shelves, adding that while those pitches simply boiled down to “money and risk” he was never interested. 

While it can’t be denied that the closure of so many potential on-trade customers, hastened by the pandemic, has reduced access to market for small breweries, Jones says this was not the deciding factor in embracing supermarket sales, and that his change of heart came during the political turmoil of the pandemic and the Black Lives Matter protests in 2020. It was also through working with the Black-owned Eko and Rock Leopard breweries, as well as The Queer Brewing Project (run by queer trans woman Lily Waite) and Good Karma (run by Steve Dass, who is of South Asian heritage) that Jones could see the difficulties minority-owned businesses faced up close.

“2020 alone changed us and made us feel that we weren’t doing enough,” says Jones. “We’d been working closely with Stacey [Ayeh, founder of Rock Leopard Brewing] throughout the year and it was an education, seeing his experience.”

That experience is shocking to hear. In a podcast conversation with Good Beer Hunting this month, Ayeh talks about how many retailers refused to stock his beers in the brewery’s early days, without any clear reason why. He says some retailers even refused to even take samples from him.

“If there were four or five other breweries owned by Black people out there I’d think it was something I was doing wrong,” he says. “But there were none.”

Ayeh only saw interest increase once he had brewed a collaboration with Cloudwater, and had been listed on the brewery’s webshop. Jones was shocked by what he called “a kind of gatekeeping” by craft beer retailers, so when Cloudwater started supplying bottle shops again in the summer of 2020, Jones only sold to retailers who also agreed to buy Rock Leopard beers. 

Another vital moment was working with Lily Waite, the first participant in Cloudwater’s Wayfinder project, which supports candidates from diverse backgrounds on their own initiatives, and which invites them to help Cloudwater and the wider industry find new, more progressive ways of doing business. Waite’s Queer Brewing Project is a cuckoo brewery that advocates for LGBTQ+ rights and raises money for LGBTQ+ charities.

“Lily has always said she wanted to be as far out there as possible in terms of being visible and accessible,” says Jones. “When I said we could maybe do it on a grocery level her eyes lit up.”

Jones says these conversations convinced him that giving such a platform to underrepresented breweries could provide them with the exposure and cash injection they needed and deserved. Eko, Rock Leopard, and Queer Brewing are all currently contract brewing, but have ambitions to grow into their own sites, a move which would require six-figure investment. 

Good Karma Brew Co., which is owned by Steve Dass and completes the Beer With Big Ideas box, was only founded last year, at the height of the pandemic. Dass was uncertain about the business’s viability until Jones approached him to be part of the collaboration box. He says the listing gives his business a “foundation,” and could potentially help him build his own brewery with a focus on low-alcohol beer and mindfulness.

“I haven’t got any investors behind me and I’m doing everything myself with the help of my wife and family,” he says. “This listing will take our tiny brand to a wider audience because a lot of people who are strict about alcohol won’t go into a bottle shop.”

Helena and Anthony Adedipe, the co-founders of Eko Brewery, met Jones when looking for somewhere to contract brew more beer to meet demand. They say their involvement, and the funds it will bring in, supports their ambitions to eventually build their own brewery and taproom space. But they also said that being stocked at chain grocery stores means their beer will reach new demographics that weren’t previously aware of Eko.

“Being a Black-owned brewery, we wanted to introduce our community to craft beer,” says Helena. “Even though everyone’s open and appears inclusive, if you don’t see anyone who looks like you then you might feel intimidated.”

WATERSHED MOMENT

The narrative from there is that those who discover good beer in supermarkets and convenience stores will eventually seek the wider and more exciting range available at independent stores. Many bottle shops are critical of this idea. Hayward says if a supermarket beer buyer comes into his shop and finds Cloudwater beers at twice the price, he’ll “lose that potential customer and lose credibility,” while Matt Hinton of Nottingham’s Brew Cavern says he delisted Leeds’ Northern Monk Brewery after it went into supermarkets because he became “tired of trying to explain to people why the beers were £7 or more when similar are available in supermarkets for £3 or less.”

In contrast, Jimmy Hebbron, who owns the Crooked Tap in York, says it’s a “great chance” to attract new customers. He cites the fact that a business like Hebden Bridge’s Vocation Brewery’s success in Tesco means his customers, who have familiarity with the brewery, buy out his allotment of Vocation’s seasonal offerings in one day. He expects Cloudwater’s move to have a similar effect. 

“With Cloudwater in Tesco I know it’s [going to be] a lot easier for drinkers to step up to drinking DEYA Brewing Company or Brew York in our pub than convincing a traditional Ale or Lager drinker to make the switch,” he says.

The risk, however, is that the number of sought-after craft breweries in U.K. supermarkets could reach a tipping point where independents lose their main advantage—their wide range. Seeing Cloudwater in supermarkets might encourage breweries that had previously resisted the idea to start selling their beer in grocery stores. Tesco is already eyeing up niche styles and breweries: A day after Cloudwater’s announcement, London’s Brew By Numbers and Edinburgh’s Vault City Brewing (which specializes in Wild Ales and Sours) revealed they would each sell two exclusive beers in Tesco.

A listing of this size could change Vault City’s fortunes entirely, given its niche, and that’s what founder Steven Smith Hay hopes. In a recent blog post, he explained how COVID-19 made him much more nervous about his business’s finances, and continuing with the level of risk he had operated at previously wasn’t something he was “comfortable” with. Smith Hay also pointed out that he is an example of someone whose love of good beer started in a supermarket.

“We believe that the beers we make are incredibly accessible and will hopefully start a good few people on their craft beer journey,” he writes. “Mine started with BrewDog and Innis & Gunn, purchased from my local Tesco.”

Jones goes one step further. He says he expects an “influx” of people to the craft beer scene as a result of the listing, but adds that going into Tesco will help create a shorter journey for newcomers to find diverse beers made by the likes of Eko, Rock Leopard, Queer Brewing, and Good Karma—and potentially skip past breweries now owned by larger corporations.

“By being in this space ourselves, we hope that folk who are loyal to macro Lager but get curious about IPAs don’t just get corralled into the Beavertown, or rather Heineken, portfolio,” Jones says.

MEANS AND ENDS

Such rhetoric might please those who see independence as the defining line between “craft” and “non-craft” brewing, but some of those who agree with the project in principle have found it hard to justify the means to get there.

Cloudwater has always been outspoken about the importance of cold-chain transport and cold storage at retailers, something that will be impossible at many Tesco stores. Jones says he has spoken to the retailer about the issue and hopes that some of the beer will be stored in fridges.

Tesco also offers permanent discounts on craft beer, currently including “four for £6” on releases from Thornbridge Brewery and BrewDog, and even “four for £4.50” on Camden Town Brewery beers. Competing with this pricing is impossible for independents, and has forced them to drop many of their biggest-selling and most accessible brands. As well as offering discount pricing, the retailer also has a history of buying and converting pubs into stores.

A Hoppy Place’s Hayward is excited for the opportunities the deal presents the four smaller breweries, even if it does mean he feels unable to continue working with Cloudwater as things stand. He adds, however, that other supermarkets would have been preferable.

“I must say I do find it distasteful that it’s Tesco,” says Hayward. “Many pub goers will find a trip to their local now a trip to a Tesco Express store.”

BrewDog, which is contract-brewing all the beers but is not taking any profit from the Beer With Big Ideas box, is now certified as a B-Corp, a designation given to companies that balance profit, sustainability, and people. However, it was also recently accused of homophobia and transphobia in the dismissal of several employees from its bar in Indianapolis, Indiana and has frequently courted controversy on subjects such as sex work and gender equality.

Some industry figures will always see teaming up with such brands as hypocrisy, and the collaboration box as distracting from the negative elements of the news. But Jones is adamant that if it weren’t for the fact that he was putting exclusive Cloudwater beer into Tesco, this opportunity would not have arisen for the minority-owned breweries. And if Tesco had refused to stock the collaboration pack, he would not have partnered with Tesco. He says he’s been chased by the supermarket for years and could have easily taken a deal in 2020 when things were tough.

“We only found the drive to take the deal [now] because we could use that draw to benefit these wonderful people, who have had too tough of a time getting a start in this industry,” he says.

What the long-term impact of one of the U.K.’s most influential breweries going into a national retailer will be remains up for debate. But at the very least it has given four new beer businesses an opportunity none had before.

Words by Jonny Garrett

Open the Gates — Cloudwater’s Tesco Deal Highlights Tensions Between Indie Ideals and Mainstream Accessibility